Life Insurance Corporation of India (LIC) has issued a clarification against SEBI’s March 19 order on front-running of the insurer’s trades by an employee.

“It is informed that Yogesh Garg was an employee in the cadre of Administrative Officer of LIC. He has been removed from the services of the Corporation following the due administrative procedure by the disciplinary authority consequent to his involvement in the front running,” the life insurer said.

It added that LIC has a “robust controlling monitoring mechanism” along with best practices to prevent any kind of front running activity, and stringent measures for transactional hygiene of dealing room have been put in place.

SEBI, on March 19,  issued a confirmatory order in respect to restrictions imposed by it on five persons or entities from buying, selling or dealing in securities either directly or indirectly. Other than Yogesh Garg, these include his relatives or related parties — Sarita Garg, Kamlesh Agarwal, Ved Prakash HUF and Sarita Garg HUF.

The order directed the noticees to deposit proceeds to the tune of ₹244.09 lakh, earned as profit from the front running trades between January 2022 and March 2022, in an escrow account immediately.

This will be in compliance with the interim order passed in April 2023, which had asked for the accounts of the noticees to be frozen and the front running amount to be deposited in the escrow account within 15 days. However,  the noticees had contended the validity and need for the interim order.

“The observations made in the present Order are tentative in nature and pending further investigation. The investigation shall be carried out without being influenced by any of the directions passed or any observation made either in the Interim Order or in the present Order. Based on the outcome of the investigation, appropriate proceedings may be initiated in accordance with law, SEBI said in the final order.

Background

Following surveillance alerts about possible front running of LIC’s trades, SEBI had conducted an examination for the period from January 2020 to March 2022. Following the interim order in April 2023, the noticees were given four opportunities, between June 2023 and January 2024, to present their case.

Yogesh Garg was an employee of LIC since November 2011 and was working in the investment department through which trades on behalf of LIC were placed. He was part of the debt dealing section before being transferred to the equity dealing section in January 2022. The order for the same was issued in December 2021, LIC said in its submission to SEBI.

The noticees claimed that the trades were carried out on the basis of independent research for the purpose of genuine trading and not for other fraudulent purposes such as frontrunning. They also argued that any impact has only been felt by LIC and no other investor or participant and hence any action should be taken by LIC and not SEBI as it is an internal matter.

“I find that the submissions of the noticees are insufficient to refute the prima facie conclusions drawn in the Interim Order. I see no reason or grounds to differ from the prima facie findings in the Interim Order, and therefore, the finding in the Interim Order that the Noticees have prima facie front run the trades stands confirmed,” SEBI Whole Time Member Ananth Narayan G said in the order.

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